Energy Resources of Australia (ERA)

UBS has downgraded its rating on uranium miner
Energy Resources of Australia
from “neutral" to “sell" thanks to uncertainty about its Ranger 3 Deeps underground mine.

The company is spending over $500 million on water management, site rehabilitation, exploration drilling and feasibility studies, which may all prove to be futile should the mine prove not to be economic.

Confirmation of viability of the mine will not be before 2014, with the broker giving a 50:50 chance of a positive outcome. If the mine does not proceed then earnings consensus is too high according to UBS, resulting in a negative net present value of $1.30 per share. However, the broker thinks that if the mine does go ahead, the net present value would be a positive $5.22.